Making the difference for clients in wild markets

One of WP’s 2017 Young Guns explains how he improves his clients’ results

Making the difference for clients in wild markets

One of Wealth Professional’s 2017 Young Guns, Simon Jochlin is getting used to new surroundings after his team was acquired by Morgan Stanley back in March. You could find worse places to relocate than sunny San Alto, California, and he is finding out there are plenty of other perks to being part of a huge financial services conglomerate too.

“We are the first international group strictly servicing Canada within Morgan Stanley International Wealth Management,” he says. “Because the majority of our clients are transitioning with us, we continue to communicate with the administrative staff at Richardson GMP, and through Graystone Consulting of Morgan Stanley we are able to advise on cross-border assets to create a consolidated picture for the client.”

Having helped spearhead the concept of portfolio analytics at Richardson GMP, Jochlin has become a key part of the StennerZohny team since joining in 2012. Following the move to Morgan Stanley, his title has changed from associate portfolio manager to international country market specialist, but data analytics remains a key part of his job.

“When I started as an advisor with StennerZohny, we were looking to create a more consolidated experience for clients in terms of risk metrics,” he explains. “A lot of that was making different financial ratios so you could have big-picture thinking for the client. Through that you could tell them if it was an appropriate time to hedge their portfolios.”

Such an approach entails using more alternatives products than would be the norm in a typical portfolio. High-net-worth individuals expect premium service, which is where extras like detailed analytics can make the difference. The markets in Canada have had a wild ride over the past three years, but that hasn’t been reflected in the books of StennerZohny, reveals Jochlin.

“Our strategy hasn’t changed much from the beginning of 2015,” he says. “We have systematically used private equity to generate uncorrelated yield to generate cash flow for clients that is uncorrelated to the markets. In January 2016 our portfolios were up 8% while the markets were down about 14%. We use private equity to hedge out a lot of the volatility and generate positive returns when the markets are down.”

One sector that is giving investors cause for concern is undoubtedly Canadian real estate. Whether the Toronto market is indeed a bubble or not is debated constantly, but in Jochlin’s opinion, there are certainly signs out there that a correction could be looming.

“We invest in the Libertas Real Asset Opportunities fund, and essentially that is a hedge against Canadian real estate, financials and alternative lenders. So by design, it had a short position against Home Capital, and when Home Capital had its hiccup, the fund was up to the tune of +42% for the month of April.”

Home Capital’s problems are well known, but Jochlin believes it is far from the only alternative lender that could end up in trouble down the line. Canada is a nation swimming in debt, which leaves it highly vulnerable should the economy ever take a sustained turn for the worse, he explains.

“The Canadian economy is 75% exposed directly or indirectly to real estate, loans and credit,” he says. “You look and that and you realize that there is way too much concentration risk in Canada. The alt lending space really depends on those deposits. As soon as deposits go away then the foundations go away too.”

Talk of a housing bubble and overleveraged lenders brings obvious comparisons to the US sub-prime crisis of 2007. That event ultimately morphed into a full-blown global contagion, the effects of which are still being felt in many countries. Canada weathered that storm better than most, and developed a reputation for good governance and regulation of its financial services as a result. Whether that reputation is deserved or not will become more apparent in the coming years, as Jochlin outlines.

“A scenario like the US sub-prime crisis would take time to play out,” he says. “Along the way there will be companies getting in trouble, then a loan will come in to help them. Banks will try to save themselves before they take write-downs. A lot of this is strapped to the Canadian consumer and economic growth. But when the economy slows down and people can’t pay back their loans, that’s when delinquencies and non-performing loans start to hit the books. I think it will be comparable to what happened in the US.”


Simon Jochlin


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